It's a little bit terrifying how close Ashley Madison came to an IPO

The details of more than 30 million people who were registered to
the site, which is meant to facilitate extramarital affairs,
were released after a data breach in July.

That's obviously terrible, but part of what's unbelievable when
you sift through the wreckage of this disaster is how close the
site was to breaking into the mainstream, at least as a major
online company.

That's amazing and scary — not from a moral point of view,
but from a business one.

As recently as four months ago, Ashley Madison's CEO was talking
up the prospect of listing the company on a stock exchange —
pretty much the pinnacle of mainstream business success.

That now looks like a laughable ambition. Since the leak, huge
holes in the business have become apparent. The confidentiality
of its (understandably secretive) users has been breached by
the hack.

But part of the reason some have been compromised is because even
the "full
delete" option offered by the site seems to have been enough
to easily identify users: They were sold a pup.

What's more — and perhaps even worse from a business perspective
— it looks like it was
almost entirely men using the service. With 31 million male
and 5 million female accounts, the odds were already stacked
against men looking to cheat, but research by Annalee Newitz
of Gizmodo suggests only 1,492 of those female accounts had ever
opened their message inboxes.

Fortress Investments, the New York-based hedge fund with nearly
$54 billion in assets, recently signaled its preliminary intent
to loan Ashley Madison's privately held parent, Avid Life Media,
$50 million over two years, according to people briefed on the
matter. (Biderman and Fortress declined to discuss this.) And
last June, a partner from the New York investment bank Jefferies
met Biderman for drinks at the Four Seasons Hotel in Manhattan to
talk about a possible initial public offering for the
Toronto-based company. Just this month, Grupo BTG Pactual SA,
Brazil's largest independent investment bank, called Biderman to
ask about taking an equity stake in Ashley Madison and licensing
the Ashley Madison brand.

Nearly a third of Avid Life media is owned by the DeZwirek
family and their company, Icarus Investment Corp.,
according to Reuters. The company clearly found it difficult
to find investors, but it didn't find it impossible.

Of course, many investors wouldn't want to own shares in Ashley
Madison for ethical reasons — and they're more likely to talk
about it — it's free press for FinnCap, after all.

But markets are largely amoral, if not immoral, and I find
it really difficult to imagine that if people saw value in the
company, it wouldn't have found buyers. Perhaps that's me being
cynical, but I think imagining it would have been rejected by a
widespread moral consensus is a bit naive.

A study by Harrison Hong and Marcin Kacperczyk in The
Journal of Financial Economics called "The Price of Sin" found
that "sin" stocks outperformed the wider market by 2.5% a year
between 1985 and 2006 (and even better just in the US). That is
the kind of margin on which hedge fund fortunes are built. It
might just be a statistical anomaly of course. More plausible, it
might be because, rightly or wrongly, this is what actually
sells. The more of them that London has — and if Ashley Madison
doesn't count as sin it is hard to know what does — then the
better the market will perform.

He also, somewhat worryingly, and perhaps rightly, said that
"far-flimsier businesses have been floated in London." That might
be the main message here — how quickly things can go down the
toilet.

Ashley Madison isn't being brought down because of its dubious
moral worth, but because it had shoddy data security and
seems to have had shoddy business practices, too. Those things
are crucial and they don't always show up on a balance sheet.

The truth is that if Ashley Madison already had investors and
massive revenue growth, it would have found more if it had
floated. There will always be someone who refuses to let money go
lying at the side of the road, no matter who it comes from.